Areva - Reference Document 2016
04
RISK FACTORS
4.8 Other risk
4.7.7. COUNTERPARTY RISK RELATED TO THE USE OF DERIVATIVES AND TO THE INVESTMENT OF CASH THE GROUP IS EXPOSED TO THE CREDIT RISK
Poor’s and Moody’s rating systems, with a rating of Investment Grade. Moreover, an umbrella agreement, for example, is always set up with counterparties likely to deal in derivatives. The limits allowed for each counterparty are determined based on its rating and the type andmaturity of the instruments traded. Assuming the rating of the counterparty is not downgraded earlier, the limits are reviewed at least once a year and approved by the group’s Chief Financial Officer. The limits are verified in a specific report produced by the internal control team of the Treasury Management Department. During periods of significant financial instability which may entail an increased risk of bank default and which may be underestimated by ratings agencies, the group tries to monitor advanced indicators such as the value of the credit default swaps (CDS) of the eligible counterparties to determine if limits should be adjusted. To limit the counterparty risk on the market value of its commitments, the group has set up a mechanism for margin calls with its most significant counterparties concerning interest rate transactions (including foreign exchange and interest terms and conditions).
OF COUNTERPARTIES LINKED TO ITS USE OF FINANCIAL DERIVATIVES TO COVER ITS RISKS AND TO THE INVESTMENT OF CASH. The group uses different types of financial instruments to manage its exposure to foreign exchange and interest rate risks and its exposure to risks on commodities. The group primarily uses forward buy/sell currency and commodity contracts and rate derivative products such as swaps, futures or options to cover these types of risk. These transactions involve exposure to counterparty risk when the contracts are concluded over the counter. Also, the group invests the group’s cash, with cash management essentially centralized in agreement with an internal policy which defines authorized investment products, and is exposed to a counterparty risk, mainly banking related. To minimize these risks, the group’s Treasury Management Department deals with diversified, top-quality counterparties based on their ratings in the Standard &
4.8.
OTHER RISK
4.8.1. POLITICAL AND ECONOMIC CONDITIONS
SOME OF THE GROUP’S OPERATIONS ARE SENSITIVE TO POLICY DECISIONS IN CERTAIN COUNTRIES, ESPECIALLY AS REGARDS ENERGY. The risk of a change in energy policy by some States cannot be excluded and could have a significant negative impact on the group’s financial position. The debates on the future of nuclear power which have begun or lie ahead in various countries could evolve in a manner that is unfavorable to the group’s operations, particularly under the influence of pressure groups or following events that give the public a negative image of nuclear power (e.g. accidents or incidents, violations of non-proliferation rules, diplomatic crises). As a result of events in Japan in March 2011, the German government decided to phase out nuclear power while other European Union countries, including France, decided to perform stress tests on their facilities (see the ASN report of January 3, 2012 on the supplementary safety assessments of nuclear facilities). More generally, events of this nature are likely to affect the positions of certain States vis-à-vis nuclear energy and could for example lead to: p new thinking on the share of nuclear power and renewable energies in the energy mix; p the slowdown or freezing of investment in new nuclear construction projects; p the reconsideration of programs to extend the operation of existing power plants; p changes in policies for the end of the cycle, particularly as concerns used fuel recycling; and/or p the early shutdown of certain nuclear power plants;
p lesser acceptance of nuclear energy by the public.
In addition, a change in economic policy in times of financial and budgetary pressures may lead to lower support for the development of renewable energies in some countries.
POLITICAL RISK SPECIFIC TO CERTAIN COUNTRIES IN WHICH THE GROUP DOES BUSINESS COULD AFFECT ITS OPERATIONS AND THEIR FINANCIAL EQUILIBRIUM (E.G. POLITICAL INSTABILITY, ACTS OF TERRORISM). AREVA is an international group with energy operations around the globe, including countries with varying degrees of political instability. Some of the group’s mining operations, for example, are located in countries where political change could affect those operations. Political instability can lead to civil unrest, expropriation, nationalization, changes in legal or tax systems, monetary restrictions, and renegotiation or cancellation of currently valid contracts, leases, mining permits and other agreements. Acts of terrorism can also generate socio-political turmoil and impair the physical safety of the group’s personnel and/or facilities. For example, the mining agreements between the government of Niger on the one hand and Somaïr and Cominak on the other relating to the operation of uranium deposits in Niger expired on December 31, 2013. Discussions for their renewal began in 2012 and came to a successful conclusion in May 2014 as part of the strategic partnership agreement signed between AREVA and the State of Niger. In accordance with the agreement, the mining agreements of Somaïr and Cominak were renewed under the Nigerien law of 2006.
34
2016 AREVA REFERENCE DOCUMENT
Made with FlippingBook